Understanding Your Competitive Position
Your business doesn't exist in a vacuum.
Whatever sector you operate in, and however unique your selling proposition, there will always be other businesses competing for customers in your field.
A competitor is a rival company operating in the same industry as you, selling similar goods or services. You may be competing against your rivals to win customers on the basis of price, the type of product you sell, the type of promotions you run, or perhaps the quality of service you offer.
When you look around at your current competitors, do you know what they're doing? Do you know how effective their current operations are, or how satisfied their customers are? When you develop your business strategies, do you consider what your competitors' strategies might be?
About Competitive Intelligence
This sort of knowledge is competitive intelligence (CI). It's generally part of a market intelligence plan, which is designed to improve your business decisions by keeping you up to speed what's happening in the external market environment.
Using CI practices, you can monitor and assess the actions of competitors and long-term market prospects. This helps you gain valuable information, and develop proactive plans to reduce the chances of receiving unexpected news – like a competitor's new product launch, or a change in pricing strategy.
You've probably heard sensational stories about unethical competitive espionage – like companies sending spies into a competitor's research and development department, or paying a former staff member for information about another business. Fortunately, you don't have to resort to such covert means, as you can learn a great deal from legitimate, legal sources. The key is deciding to look in the first place – and then knowing where and how to look.
What Is Competitive Intelligence?
Competitive intelligence is the systematic monitoring of your competitors' actions to determine what they're currently doing – and what they're likely to do in the future. By gathering this type of information, you improve your own decisions, both strategically and tactically, and you get a better understanding of your own competitive position.
For example, if you know that a major competitor is pursuing an acquisition strategy, then you might decide not to compete on size, but to focus on quality and customer service instead. Or, if a competitor starts to buy raw materials from another country, you might emphasize that you use ‘home-grown' materials as a theme for your next advertising campaign.
Competitive intelligence focuses on five basic categories of information:
- Strategy assessment – What are your competitors' strategies?
- Current operations – What are your competitors doing right now?
- Competitor perceptions – How do customers perceive your competitors?
- Competitor capabilities – What advantages can your competitors use now and in the future?
- Market prospects – In what direction is the market moving, and how well positioned are your competitors to move with it?
By discovering information relating to these five areas, you can plan your actions – and reactions – accordingly.
Understand Your Own Competitive Position
As well as gathering information about competitors so you can keep ahead of them, it's vital to know exactly where and how you are positioned in the market. There are several useful strategy tools to help you gain a deeper understanding of your own competitive position in the marketplace. These include the following:
- USP Analysis can help you understand how other businesses are competing in your industry. It helps define and establish your ‘competitive edge,' to differentiate you from your competitors.
- Core Competence Analysis can help you identify the things your company does uniquely well, and that other businesses can't copy quickly enough to affect competition. You can test if they are true core competences by analyzing how far they influence customers to buy from you; how difficult they are to imitate; and whether they can be applied to a broad range of potential markets.
- Porters Five Forces helps you assess where power lies in a business situation, and helps analyze whether a potential new product or service would be successful. The tool looks at the strength of five forces that affect competition. These are: supplier power, buyer power, competitive rivalry, threat of substitution, and threat of new entry.
- Porter's Generic Strategies looks at the three main ways you can gain competitive advantage in your sector. You can do this by: focusing on cost; offering a niche service in a specialist market; or making your products different from, and more attractive than, those of your competitors.
- Bowman's Strategy Clock expands Porter's three strategic positions to eight. This model looks at different combinations of price and perceived value, and how successful each one is likely to be. It can help you choose the route to competitive advantage that best fits with your organization's competences.
- VRIO Analysis helps you evaluate how your organization's resources (people, processes, or other physical assets) contribute to your market position. VRIO helps you assess the value, rarity, and inimitability of your resources – and how well your organization is able to use them.
Where to Find Competitive Information
The biggest question people usually have when they first consider competitive intelligence is where to locate their sources of information. Competitors aren't actively going to make public the type of information you want to know. However, there are a wide variety of sources that can provide the information you need, including the following:
- Collect their brochures and other marketing materials.
- Buy your competitors' products, and analyze them.
- Read competitors' websites.
- For public companies, look at shareholder reports and notices.
- Where possible, visit competitors' stores, and talk to people there.
- Put yourself on competitors' mailing lists, and subscribe to their publications.
- Survey customer satisfaction with your products versus competitors' products.
- Create scorecards for customers based on your critical success factors.
- Ask customers why they might buy from your competitors, and not from you.
- When speaking to your customers, note any comments – good or bad – that they make about competitors.
- Put yourself on customers' mailing lists, and subscribe to their publications.
- Attend events, conferences, and presentations sponsored and/or attended by suppliers, and see which ones your competitors attend.
- Consult supplier websites for any mentions of your competitors, current customers, or potential customers.
- Put yourself on suppliers' mailing lists, and subscribe to their publications.
- Industry associations – Join associations and business groups that are related to your industry.
- Conferences – Attend conferences and other events in your industry.
- Trade journals – Subscribe to publications from your industry, regulatory bodies, business associations, local business groups, and so on. This will help you stay up to date with the latest industry information. If you don't want to spend the money on these publications, many community and university libraries will have this material.
- Internet – Search relevant websites, newsgroups, and portals.
You can also buy in help from other outside sources – for example, by hiring a competitive intelligence professional, who can gather information for you. Many different services are available. The Society of Competitive Intelligence Professionals (SCIP) is a great place to start your search.
You may also consider using competitive intelligence software, which can create a CI database, analyze the information you've collected, or automate the way you collect that information. However, it's best to understand fully what you need from a system before investing in one.
Make sure you follow ethical and legal guidelines when gathering competitive intelligence. There's no need to use illegal practices when so much information is readily available. If you aren't sure if the information you have was gained legally, consult a lawyer who specializes in competitive intelligence.
Counterintelligence is just as important as competitive intelligence. While you're out seeking information on your competitors, you should actively protect your own information. You'll probably never be able keep everything a secret, but you can consult the same sources we've mentioned for information about your own operations – and find out if something is public that shouldn't be.
Also, develop practices and systems to help keep your information safe. For example, you could require your staff to sign confidentiality agreements, limit all media access and public reporting to a communications specialist, and use careful hiring and firing practices.
Competitive Intelligence Strategy
With so much information available, it's easy to get lost in your competitive intelligence search. It's therefore important to have a competitive intelligence strategy. There are four basic components of a comprehensive strategy: planning, collecting, analyzing, and communicating and storing.
Determine what you need to know, and why.
- What information do you need to know?
- Why do you need to know it?
- What do you already know?
- What will it cost to gather information you don't have?
- What will you do with the information once you have it?
Your answers will help guide your decisions about which resources you'll use, and how much time and energy you'll invest in your CI strategy.
Start gathering the information.
- Where will you look?
- Who will do the looking? Will you use internal staff or outside services?
- Will you use specialized software?
- What guidelines do you need to ensure that collecting information is ethical and legal?
Determine how you'll use the information.
- What can your company do better?
- What can you do differently?
- What range of strategic moves are your competitors likely to pursue?
- How are your competitors likely to react, given the trends and events in the industry?
Completing a SWOT analysis on your competitors is a great way to frame your discoveries, and map your own best strategies and actions.
Communicating and Storing
You probably won't use all the information all the time, so decide how you'll distribute your findings, now and in the future.
- What information should you tell your staff now? In the future?
- Who needs to know this information now? In the future?
- How will you store the information for future use?
- How will you learn from your experiences?
Competitive intelligence involves a lot of predicting and guessing. By developing a strategy to follow, you'll put yourself in a better position to understand what you need to know, and how you should use that knowledge. Being proactive, rather than reactive, is what will keep you ahead of the game.
Your competitive intelligence strategy will grow and mature as you learn more about the process, and gain confidence in your ability to use the information wisely. The bottom line is that the more knowledge and information you have about the external market and your competitors, the better your decisions are likely to be. Effective decision making is the key to organizational success and longevity, so provide as many inputs to that process as possible. You'll improve your business performance by using competitive information strategically and intelligently.